TOKYO (Reuters) - Confidence at Japanese manufacturers slid in December and is expected to deteriorate while the mood at service firms rebounded, a Reuters poll showed, highlighting the uneven recovery after an April tax increase.
The frail business sentiment in the monthly Reuters Tankan suggests further weakness in the Bank of Japan's tankan survey, which has been forecast to stay largely flat in the fourth quarter.
A weak result in the closely watched BOJ survey, in turn, could cast further doubt on the central bank's rosy economic forecasts, and falling oil prices are expected to complicate the BOJ's attempts to drag the world's third-biggest economy out of deflation.
The central bank, which stunned investors worldwide on Oct. 31 by expanding its quantitative easing, could come under pressure for more stimulus amid scepticism about its view that inflation will accelerate to its 2 percent target in the year that begins April 2015.
The wobbly business mood also clouds the outlook for "Abenomics" even as Prime Minister Shinzo Abe looks set to keep power in a Dec. 14 vote he has dubbed a referendum on his reflationary policy.
The Reuters Tankan, which is strongly correlated with the central bank's pivotal, canvassed 486 big Japanese companies, of which 263 replied, between Nov. 25 and Dec. 3.
The managers, who responded anonymously to the Reuters survey, voiced concerns on lingering weakness in demand after the increase in the national sales tax - which tipped Japan back into recession - and higher import costs caused by the yen's fall. Uncertainty over the global economy adds to their worries.
"The domestic economy has deteriorated due to inflation caused by the sales tax rise and the weak yen," an executive of a transport equipment firm said in the survey. "Emerging market economies are also slowing down."
The sentiment index for manufacturers fell to 10 in December from 13 in November, with car and transport-equipment makers taking a hit. Manufacturers expect a further decline to 7 in March.
Compared with three months ago, the manufacturers' index held steady, suggesting that the BOJ's quarterly tankan due Dec. 15 is likely to show little improvement in sentiment.
The Reuters Tankan service-sector index rose to 23 in December from 18 in November but was little changed from 22 three months ago, with retailers reeling from the sales tax pain. The sentiment index is seen inching up to 24 in March.
The survey indices subtract the percentage of companies saying conditions are improving from that of companies saying conditions are worsening. A positive number means optimists outnumber pessimists.
Reporting by Tetsushi Kajimoto; Editing by William Mallard and Richard Borsuk